Some suspect European Commission’s reluctance to grant “equivalence” is politically motivated and will force firms to onshore to Continent
Brussels refusal to grant UK financial services access to the single market will force Britain to diverge from EU rules after Brexit, industry sources have warned.
The European Commission has no immediate plans to grant British firms in 28 sectors market access through a system of regulatory recognition called equivalence, Brussels insiders confirmed.
EU officials said Brussels would not grant equivalence to UK firms unless the Government explained how far it planned to diverge from EU rules in the future.
The Government is extremely disappointed at the EUs failure to reciprocate after it granted equivalence to 28 areas of business such as EU investment firms, exchanges and credit rating agencies in November.
Equivalence is a unilateral decision, which can be withdrawn with as little as 30 days notice in most cases. UK financial services lost their EU passport to the Single Market on December 31, when Britain left the Brexit transition period, and the new trade deal does not cover the sector.
The EU has previously used equivalence to encourage adherence to its rules with other non-EU countries but City leaders said the longer the stand-off lasts, the greater the incentive to break from Brussels rules to secure new opportunities in other markets.
Miles Celic, chief executive of TheCityUK group, said: The reality is that both markets are dynamic and as they evolve the likelihood, and value, of equivalence will shrink.
Professor Sarah Hall of Nottingham University, said equivalence should be seen as a perishable good.
The longer it takes for an equivalence decision to be taken, the more likely it is that UK based financial service firms will take decisions to operate without equivalence, some of which will be hard to replay, particularly in terms of staff relocations, she said.
Maria Demertzis of the Brussels-based Bruegel think tank, said there was still unfinished business after the trade negotiations but that an agreement would be struck.
She predicted the EU would use the same arguments over the level playing field and fair competition it did during the trade talks: We cannot of course blame the UK if it seeks other markets and diverge in the process. The question is whether it cares if it loses access to EU markets in the process.